As a TA for over 40 years, I can definitely confirm that the refunds provided by airlines when doing an involuntary downgrade are ALWAYS less than should be fairly provided. They should refund the difference between what the client paid for Business and what the client would reasonable be expected to have paid for Economy, i.e. the lowest available fare. What is usually done, however, is the airline refunds the difference between the Business fare paid and a much higher Economy fare that it's extremely unlikely the client would have ever considered purchasing.
As for who gets downgraded, the one who booked seven month ago should get preference over the one who booked a week ago. When it comes to loyalty, who is the more loyal? A Bronze member who only travels 2-3 times a year but pays out of their own pocket and always chooses Qantas, or a Gold member who travels frequently because the boss pays, who is also a Star Alliance member and a SkyTeam member, and flies Qantas only when the flights suit?